The continuing growth of omni-channel commerce is a great thing, right? E-commerce is fueling strong results for sellers, as a record five billion Internet users worldwide contributed to online retail revenues of over $4.1 trillion in 2024 alone. Around the world, e-commerce accounted for 17% of all retail sales last year — and that number is expected to rise to 21% by 2029.

Omni-channel commerce gives shoppers more options, in terms of both retail brands and specific products. It also fuels price competition, which is good for shoppers. And it provides retailers and direct-to-consumer (D2C) manufacturers with limitless access to shoppers around the world. Of course it’s a positive development, driving significant economic benefits.

But let’s be honest. The explosive growth of e-commerce also creates significant logistics challenges for retailers and D2C manufacturers. As they fulfill huge, unpredictable order volumes and process more and more returns in their distribution centers, sellers are often challenged to achieve both high service levels and high profitability.

Retailers and D2C manufacturers are expected to have an enormous range of products available, across the distribution network, ready for same-day or next-day delivery. They need to offer low-cost or free shipping and returns, while also protecting margins. They must track inventory, orders and returns in real time, at all times. And they need to manage their resources, from inventory and labor to forklifts and robotics, with incredible precision — keeping all assets moving productively, while avoiding excess inventory and equipment downtime.

In the case of product returns — which amounted to a staggering $890 billion in 2024 — the warehouse needs to move with lightning speed and precision to capture the resale opportunity and minimize waste.

It’s no longer optional — LSPs need to master fulfillment and returns

Increasingly, retailers and D2C manufacturers are choosing to outsource the seemingly insurmountable challenge of omni-channel fulfillment and returns to their expert partners: Logistics service providers (LSPs). Third-party logistics providers (3PLs) and the growing fourth-party logistics provider (4PL) community are expanding their offerings of managed warehousing and distribution services in response to growing demand.

While it’s a lucrative business segment, managing omni-channel fulfillment and returns — across customers, at massive scale — is not easy for LSPs. Imagine the complexities of a single fulfillment-and-returns operation, in one warehouse. Now multiply that by dozens of customers, thousands of SKUs, multiple distribution centers and exponentially higher operations volatility.

As consumers grow in their delivery, service and pricing expectations, those pressures are, in turn, placed on LSPs who often struggle to operate profitably in this demanding landscape.

In achieving omni-channel optimization, at scale, LSPs face big challenges

What can LSPs do? Is it even possible to achieve the required level of speed, precision, customer service and planning accuracy at scale, 24-7, as orders and returns keep coming in? Across multiple customers and supply chains?

In Blue Yonder’s experience working with over 175 LSPs, it’s very achievable. But first LSPs need to overcome these four common challenges we’ve witnessed firsthand:

  • Inventory and order handling gaps. For LSPs managing multi-client warehouses, misaligned or unbalanced inventory can lead to higher operations costs, fulfillment delays and missed service targets. It can be especially hard to manage and prioritize orders and inventory during launches or promotional events. Of course, this damages both LSP-retailer relationships and retailer-consumer relationships. The solution lies in using advanced technology to achieve the real-time inventory visibility and synchronization needed to balance orders with availability.
  • Dynamic requirements for labor and other resources. Order volatility also makes it tough to forecast labor and other resources across clients in managed warehouses. In today’s tight labor market, LSPs often face both fluctuating employee availability and demand surges. Understaffing during peak periods increases costs and delays, while also reducing fulfilment service levels. By leveraging digital workforce planning and warehousing solutions, enabled by artificial intelligence (AI), LSPs can dynamically allocate resources to meet client requirements both efficiently and profitably.
  • Increasing reverse logistics complexity. Growing return volumes, spurred by e-commerce growth, are only exacerbating the pressure on LSPs. Amid the rising costs of handling and processing large return volumes, many LSPs are striving — but failing — to integrate their forward and reverse logistics operations. Advanced technology can help, by consolidating return pickups across multiple customers, introducing a centralized reverse logistics platform, and fueling more sustainable workflows and practices — while also minimizing costs and delays.
  • A need for agile, real-time decision-making. As they manage multiple complex customer supply chains, LSPs are overwhelmed with data —about inventory movements, new orders, transportation capacity, labor availability, supply disruptions, and other upstream and downstream events. Disruptions at any node, or in any function, demand swift, smart decisions. But LSPs struggle to manage all this data, achieve real-time visibility, and sense disruptions and exceptions. That means they also lack real-time responsiveness and agility when these events occur. AI is the only practical solution for tracking supply chain events and driving an informed, strategic response. Advanced analytics, real-time data integration, and autonomous, AI-enabled decision engines empower LSPs to pivot quickly and strategically, improving inventory allocation, order prioritization, cost control and overall customer service.

The convergence of these forces signals a pressing need: LSPs need to transform their operations by embracing digital solutions, powered by AI and other innovations, to manage multiple omni-channel supply chains effectively.

To master omni-channel fulfillment and returns, LSPs need three capabilities

To optimize their omni-channel fulfillment and returns management operations, LSPs need advanced digital capabilities, integrated on a unified platform. Modern AI, analytics, data integration and advanced decision engines can help them achieve leadership in these three areas:

1. Intelligent fulfillment sourcing and rebalancing

    It’s become impossible for human analysts to balance cost, location, speed, service and profitability while fulfilling orders in one supply chain — let alone across multiple customer operations. LSPs can leverage AI and machine learning (ML) algorithms to make optimal fulfillment sourcing and inventory rebalancing decisions in mere seconds. They can build customer — and consumer — trust by providing reliable “order by” and “get by” dates that add up to reliable promises. They can align inventory precisely with real-time demand, for faster delivery and lower carrying costs. And LSPs can also respond proactively to disruptions with dynamic, flexible fulfillment sourcing and rebalancing.

    2. Highly configurable warehousing

      Advanced digital solutions empower LSPs to optimize warehouse productivity and throughput at every stage of order fulfillment and returns processing. Not only can LSPs automate internal processes and decisions, but they can also seamlessly integrate their warehouse operations with multiple customer systems. The result? The real-time, end-to-end visibility retailers, D2C manufacturers and consumers demand today. Today’s best-in-class warehouse solutions are highly extensible and configurable, to easily integrate with a range of external partners and systems. Configurable warehousing, driven by digitalization, has been proven to increase warehouse productivity by 20% and reduce employee turnover by 50%, as daily decision-making and process management become easier.

      3. Profitable, seamless returns management

      Intelligent decision engines and real-time visibility can transform the huge challenge of reverse logistics into a competitive edge for LSPs. By integrating order management and warehouse management systems with returns management software, LSPs can reduce delays, minimize waste and optimize resource utilization. By processing, routing and dispositioning returns in a smarter and faster manner, LSPs can maximize the resale opportunity, as well as the sustainability of their reverse logistics operations. Digitalization has demonstrated an ability to reduce reverse logistics costs by 30%, while improving customer and consumer service levels.

      Blue Yonder fulfills the most urgent needs of LSPs, every day

      Blue Yonder’s complete set of digital solutions for LSPs includes integrated warehousing, omni-channel fulfilment and returns management solutions that enable LSPs to synchronize inventory in real time, orchestrate multi-channel order flows and efficiently manage high-volume returns. Flexible scaling and intelligent order routing allow LSPs to streamline fulfillment, reduce disruptions and enhance profitability while meeting diverse customer needs across channels.

      LSPs can realize additional value by leveraging Blue Yonder Platform to unify their advanced digital solutions, driving tight integration and real-time connectivity. LSPs can link processes and workflows across warehousing, order management and fulfillment, and returns management. End-to-end integration enables LSPs to scale quickly and adapt to market changes across multiple customer supply chains in just minutes.

      Don’t wait until even greater pressures emerge. View this video and contact Blue Yonder today to discuss how we can help transform your business.